<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1939
For the transition period from ______________________ to___________________
Commission File Number: 1-13984
CREATIVE BAKERIES, INC.
(Exact name of small business issuer as specified in its charter)
New York 22-3576940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20 Passaic Avenue, Fairfield, NJ 07004
(Address of principal executive offices)
Issuer's telephone number, including area code: (973) 808-9292
---------------
Former name: William Greenberg Jr. Desserts and Cafes, Inc.
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1999
- ------------------------------ ----------------------------------
<S> <C>
Common Stock, par value $0.001
per share 5,090,750
</TABLE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial information
Item 1. Condensed consolidated financial statements:
Balance sheet as of September 30, 1999 F-2
Statement of operations for the nine and three months ended September
30, 1999 and 1998 F-3
Statement of cash flows for the nine months ended September 30, 1999
and 1998 F-4
Notes to condensed consolidated financial statements F-5 - F-12
Item 2. Management's discussion and analysis of financial condition
Item 3. Legal proceedings
Part II. Other information
Signatures
</TABLE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 207,515
Accounts receivable, less allowance for doubtful
accounts of $16,000 356,378
Loans receivable 22,595
Inventories 254,907
Prepaid expenses and other current assets 39,622
------------
Total current assets 881,017
------------
Property and equipment, net 706,460
------------
Other assets:
Goodwill, net of amortization 930,397
Security deposits 5,464
------------
935,861
------------
$ 2,523,338
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 20,694
Notes payable, bank 142,240
Loans payable, other 18,369
Accounts payable 566,912
Payroll taxes payable 58,810
Accrued expenses 274,931
------------
Total current liabilities 1,081,956
------------
Other liabilities:
Long-term debt, net of current portion 29,715
Deferred rent 141,067
Net liabilities of discontinued operations less
assets to be disposed of 556,286
------------
727,068
------------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 2,000,000
shares; none issued
Common stock, $.001 par value, authorized 10,000,000
shares, issued 5,305,250 shares 5,305
Additional paid in capital 11,463,697
Deficit (10,490,069)
------------
978,933
Common stock held in treasury, 214,500 shares (264,619)
------------
714,314
------------
$ 2,523,338
============
See notes to condensed consolidated financial statements.
F-2
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1998 1998
1999 Restated 1999 Restated
---- -------- ---- --------
<S> <C> <C> <C> <C>
Net sales $ 3,235,709 $ 2,843,752 $ 1,199,457 $ 884,411
Cost of sales 2,655,469 2,324,661 1,044,269 677,887
----------- ----------- ----------- -----------
Gross profit 580,240 519,091 155,188 206,524
Selling, general and administrative
expenses 671,041 870,920 141,199 256,240
Loss before other income (expenses)
and discontinued operations (90,801) (351,829) 13,989 (49,716)
----------- ----------- ----------- -----------
Other income (expenses):
Sale of marketable securities 3,216
Miscellaneous income 47,976 43,733 5,631 9,553
Interest income 6,219 8,587 1,971 1,626
Interest expense (12,505) (23,489) (6,876) (4,660)
----------- ----------- ----------- -----------
44,906 28,831 726 6,519
----------- ----------- ----------- -----------
Loss from continuing operations (45,895) (322,998) 14,715 (43,197)
Discontinued operations:
Income (loss) from operations of
New York facility to be disposed of (3,974) (238,185) (27,789) 44,026
----------- ----------- ----------- -----------
Net income (loss) ($ 49,869) ($ 561,183) ($ 13,074) $ 829
=========== =========== =========== ===========
Earnings per common share:
Basic and fully diluted:
Income (loss) on continuing
operations ($ 0.01) ($ 0.06) ($ 0.00) ($ 0.01)
Income (loss) from discontinued
operations $ 0.00 (0.05) (0.00) 0.01
----------- ----------- ----------- -----------
Net income (loss) per common share ($ 0.01) ($ 0.11) ($ 0.00) $ 0.00
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 5,282,781 5,086,007 5,305,250 4,972,233
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1998
1999 Restated
---- --------
<S> <C> <C>
Operating activities:
Loss from continuing operations ($ 45,895) ($322,998)
Adjustments to reconcile income from
continuing operations to cash provided from
continuing operations:
Depreciation 88,702 176,453
Compensatory element of issuance of warrants 57,402
Gain on sale of marketable securities 3,216
Changes in other operating assets and liabilities from continuing operations:
Accounts receivable (93,902) 85,425
Inventory (19,315) 86,359
Prepaid expenses and other current assets 9,600 22,112
Security deposits 17,871
Accounts payable 41,272 (52,736)
Accrued expenses and other current liabilities 86,024 (156,537)
Deferred rent (10,271) (27,779)
--------- ---------
Net cash provided by (used in) operating
activities 59,431 (114,428)
Net cash used in discontinued operations (92,047) (70,809)
--------- ---------
Net cash used in operating activities (32,616) (185,237)
--------- ---------
Investing activities:
Proceeds from sale of marketable securities 4,533
Purchase of property and equipment (27,029) (10,598)
--------- ---------
Net cash used in investing activities (22,496) (10,598)
--------- ---------
Financing activities:
Proceeds from issuance of common stock and
warrants 187,500 112,000
Purchase of treasury stock (17,250) (229,289)
Payment of debt (37,249) (58,307)
--------- ---------
Net cash provided by (used in) financing
activities 133,001 (175,596)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 77,889 (371,431)
Cash and cash equivalents, beginning of period 129,626 479,312
--------- ---------
Cash and cash equivalents, end of period $ 207,515 $ 107,881
========= =========
Supplemental disclosures:
Cash paid during the period:
Interest paid during the period
Continuing operations $ 12,505 $ 18,348
========= =========
Discontinued operations $ 0 $ 0
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The results of
operations for the six months ended is not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1998 included in
its Annual Report filed on Form 10-KSB.
2. Organization of the Company:
On January 23, 1997, the Company purchased 100% of the outstanding common
stock of J.M. Specialties, Inc. ("JMS") in a transaction accounted for
as a purchase (the "Acquisition"). The purchase price of $2,160,000
consisted of (i) $900,000 in cash, (ii) 500,000 shares of the
Company's common stock valued at fair market value of $1.75 per share
(aggregating $875,000), and (iii) 350,000 purchase warrants valued at
fair value of $1.10 per warrant (aggregating $385,000) to acquire
350,000 shares of the Company's common stock at $2.50 per share. The
warrants are in the same form as those described below.
JMS, which was founded in 1984, offers a line of both batter and frozen
finished cakes, brownies and muffins - with muffins constituting
approximately 90% of sales. These products are produced in batches
using partially automated equipment at its facility in Parsippany, New
Jersey. The product is sold to wholesale customers as well as
supermarket distribution centers and is marketed primarily through
food distribution companies in New Jersey and New York. In turn,
according to JMS's management, the distributor sells approximately
forty percent of the product to supermarkets and sixty percent to food
service customers, such as hospitals, colleges, restaurants and
corporate dining rooms.
On September 1, 1997, the Company acquired 100% of the outstanding common
shares of Chatterly Elegant Desserts, Inc. (Chatterly) in a
transaction accounted for as a pooling of interest. The Company issued
1,300,000 of its common shares pursuant to the acquisition, of which
200,000 shares were returned to the Company on March 10, 1998 when the
seller's sales agreement was amended.
Chatterly, which was founded in 1985, produces a line of cakes, tortes and
other dessert items which are made in its facility in Fairfield, New
Jersey. The products are sold to wholesale customers as well as
supermarkets and other food distributors in New Jersey and New York.
F-5
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Principles of consolidation:
The consolidated financial statements of Creative Bakeries, Inc. and
subsidiaries include the accounts of all significant wholly owned
subsidiaries, after elimination of all significant intercompany
transactions and accounts. Financial statements have been restated as
of September 30, 1998 to reflect the discontinuation of the operations
of WGJ Desserts, Inc. (see Note 15)
4. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $ 92,248
Finished goods 71,206
Packaging supplies,
labels, etc. 91,453
--------
$254,907
========
</TABLE>
5. Note receivable:
On November 3, 1998, the Company sold its one remaining retail facility
for $405,000 which represented disposition of equipment and a license
to sell under the "William Greenberg, Jr. Desserts and Cafes" name.
The agreement called for a cash down payment of $110,000 with the
remainder being paid on a note receivable due in semi-annual
installments of $36,875 plus interest at prime.
The maturities of the notes are as follows:
<TABLE>
<S> <C>
September 30, 2000 $ 73,750
September 30, 2001 73,750
September 30, 2002 73,750
September 30, 2003 36,875
--------
$258,125
========
</TABLE>
F-6
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Note receivable (continued):
In the event that the licensee opens and operates any additional retail
store(s) utilizing the license (other than the original retail store)
and the annual gross retail sales of any such store(s) exceeds
$400,000, then the licensee shall pay the licensor (the Company) a
five percent royalty on all sales in excess of the $400,000 of sales
in each store. The licensee shall pay the licensor a royalty on a
semi-annual basis of 3% of all mail order sales in excess of $100,000.
6. Property and equipment:
The following is a summary of property and equipment at September 30, 1999:
<TABLE>
<S> <C>
Baking equipment $1,423,143
Furniture and fixtures 78,864
Leasehold improvements 180,422
----------
1,682,429
Less: Accumulated depreciation
and amortization 975,969
----------
$ 706,460
==========
</TABLE>
7. Intangible assets:
The excess cost over the fair value of the net assets acquired from J.M.
Specialties, Inc. aggregated $1,213,565. This goodwill has been
amortized over its estimated useful life of fifteen years.
Amortization charged to operations amounted to $46,706 in 1999 and
1998.
8. Deferred rent:
The accompanying financial statements reflect rent expense on a
straight-line basis over the life of the lease. Rent expense charged
to operations differs with the cash payments required under the terms
of the real property operating leases because of scheduled rent
payment increases throughout the term of the leases. The deferred rent
liability is the result of recognizing rental expense as required by
generally accepted accounting principles.
F-7
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Common stock:
In January 1999, the Company issued 150,000 of its common stock at $1.25
for total proceeds of $187,500.
In January 1999, the Company issued 40,000 of its common shares in lieu
of payment of a note amounting to $100,000 held by a former
shareholder.
In May 1999, the Company issued 13,500 of its common shares in lieu of
payment of compensation amounting to $11,812 to a former director.
In September 1999, the Company issued 20,000 of its common shares in lieu
of payment of a note amounting to $100,000 held by a former
shareholder.
10. Notes payable:
Equipment with a cost of $253,719 has been pledged as collateral on a note
payable in monthly installments of $3,881 including interest. The
notes carry interest varying rates of 10.30% to 17.87% and mature
between 1999 and 2004.
The total future annual payments as of June 30, 1999 are as follows:
<TABLE>
<S> <C>
September 30, 2000 $14,615
September 30, 2001 8,078
September 30, 2002 9,148
September 30, 2003 10,360
September 30, 2004 4,712
-------
$46,913
=======
</TABLE>
11. Commitments and contingencies:
J.M. Specialties:
In connection with the Acquisition, the Company entered into an
employment agreement with the selling shareholder pursuant to which he
will serve as a director and chief executive officer of the Company at
an annual salary level of $250,000 for 1997 and a minimum of $150,000
thereafter. In addition, the Company agreed to provide $600,000 to JMS
for working capital.
In order to finance the Acquisition, the Company sold in a private
placement 1,875,500 common stock purchase warrants ("the Placement
Warrants") at a net price to the Company (after expenses of $315,000)
of $1,747,500. Each Placement Warrant entitles the holder thereof to
purchase one common share, par value $.001 per share, of the common
stock of the Company at an exercise price per share of $2.50 for a
term which will expire on December 31, 2000.
F-8
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and contingencies (continued):
The Company has the right to redeem the Placement Warrants, in
installments, at a redemption price of $.10 per warrant commencing six
months after the date of issuance if the stock trades at a designated
level for at least five trading days prior to the month preceding the
date on which the redemption right may be exercised.
The holders of the Placement Warrants have a put option pursuant to which
for a 60 day period prior to their expiration date, the holder has the
right to require the Company to repurchase the Placement Warrants for
a consideration consisting of $.10 per warrant plus 40% of a share of
common stock. In addition, the Placement Warrants have standard
anti-dilution protection.
Under the terms of its agreement with InterEquity Capital Partners, L.P.,
the Company reserved 185,682 shares of its common stock for issuance
under the warrant. Management ascribed a fair value of $1.10 per
common share.
Litigation matters:
The Company and its subsidiary, WGJ Desserts, Inc., have been named as
defendants in an action entitled Bacal v Creative Bakeries, Inc. which
was filed in the Supreme Court of the State of New York for the County
of New York. The complaint in the action alleges that defendants
Edmund Abramson, currently a director of the Company and Willa
Abramson, who resigned as a director in 1996, allegedly acting on
behalf of the Company and Greenberg, entered into an agreement with
plaintiff, Murray Bacal, whereby Mr. Bacal would purchase warrants for
common stock of the Company and that the Abramson's agreed to
repurchase the warrants for the same price at which they were
originally sold to him, plus out of pocket expenses. As a consequence,
the complaint seeks $131,500 in compensatory damages and $1,000,000 in
punitive damages. On December 14, 1998, the Company moved by order to
show cause to dismiss the complaint in its entirety as against the
Company based on the fact that the action involves a private
transaction between the plaintiff and the Abramson's, and the
complaint fails to state a cause of action against Creative Bakeries,
Inc. After a full briefing and oral argument, the papers were taken by
the court on submission and the Company is awaiting a ruling on that
motion.
The Company has also been named as a defendant in an action entitled
Ackerman v Alan Sloan, an adversary proceeding brought in the United
States Bankruptcy Court by the Chapter 7 trustee of Alliotto Bakery
Cafe, Inc. The complaint alleges that the Company, while operating as
William Greenberg, Jr. Desserts and Cafes, Inc. used customer lists
and property of the Chapter 7 debtor for a period of several weeks
sometime after June 1998 without having paid fair value or
consideration. While the Company does not believe it committed any
actionable conduct, the Company does not believe the claim is material
because it is believed to involve a potential exposure of only several
thousand dollars. The Company has not yet filed a formal response to
the claim.
F-9
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings per share:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Weighted average of shares actually
outstanding 5,282,781 5,173,352
Common stock purchase warrants
--------- ---------
Primary and fully diluted weighted
average common shares outstanding 5,282,781 5,173,352
========= =========
</TABLE>
The conversion of the common stock warrants was not assumed as the effect
would be anti-dilutive.
13. Non-cash investing and financing transactions:
During the current period, the Company entered into a capital for new
equipment in the amount of $43,200. In addition, the Company issued
common shares in payment of legal, consulting fees and other
obligations in the amount of $120,562.
14. Discontinued operations:
In 1998, the Company adopted a formal plan to close WGJ Desserts and
Cafes, Inc., its New York manufacturing facility, which was done in
July of 1998 and to dispose of its one remaining retail store, which
was accomplished in November 1998. The New Jersey facility was
unaffected and still continues to sell and manufacture.
The sale of the final retail location resulted in a selling price of
$405,000 which includes a note receivable of $295,000. The sale
resulted in a gain of $321,350.
F-10
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Discontinued operations (continued):
Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
consisted of the following as of September 30, 1999:
<TABLE>
<S> <C>
Accounts payable $278,212
Accrued payroll 303,084
Accrued expenses 275,932
Deferred rent 39,257
--------
896,485
--------
Notes receivable 260,125
Interest receivable 8,276
Property and equipment 35,000
Covenant not to compete 18,750
Security deposits 18,048
--------
340,199
--------
$556,286
========
</TABLE>
Information relating to discontinued operations for WGJ Desserts and Cafes,
Inc. for the nine months ended September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C>
Net sales $ 957,349
Cost of sales 534,681
---------
Gross profit 422,668
Operating expenses $ 99,897 566,541
--------- ---------
Loss from operations (99,897) (143,873)
Loss on abandonment of leasehold
improvements (143,177)
Settlement income 80,005 48,865
Interest income 15,918
--------- ---------
Net income (loss) from discontinued
operations ($ 3,974) ($238,185)
========= =========
F-11
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Other matters:
The year 2000 issue relates to the inability of many electronic data
processing (EDP) systems to accurately process year-date data beyond
the year 1999. Unless year 2000 problems are remedied, significant
problems relating to the integrity of all electronically processed
information based on time will occur.
Additionally, there are many other operational issues that need to be
assessed, such as computer-run maintenance systems, as well as systems
that may be indirectly controlled by computer by way of a chip
embedded in their designs.
The effect, if any, at this time about the problems that could occur and
the costs to remedy can not be determined.
F-12
<PAGE>
Item 2, Management's Discussion and Analysis of Financial Condition and Plan of
Operation
General:
Our plan for restructuring the company is well under way. The commissary aiong
with unprofitable retail stores have been closed. In November 1998 the Company
sold its remaining retail store on Madison Ave., thus completing its exit from
direct involvement in retailing.
The buyer purchased:
1. The Madison Avenue Store
2. The license to open additional stores from which the Company stands to earn
royalty and
3. A 50% stake in the wholesale and mail order business,
Plans call for leveraging the William Greenberg brand through licensing
agreements and expanding the Batter Bake-Chatterley wholesale business by
penetrating new areas and introducing new products.
At Sep, 30, 1999 to the extent the Company may have taxable income in future
periods, there is available a net operating loss for federal income tax purposes
of approximately $7,100,000 which can be used to reduce the tax on income up to
that amount through the year 2011.
b. Results of Operations;
Results of Operations (continuing) for three months ending Sep. 30, 1999 vs.
three months ended Sep. 30, 1998:
The Company's consolidated revenues aggregated $1,199,457 in the 3rd quarter
1999 vs. $884,411 in the 3rd quarter 1998. The cost of goods sold was $1,044,269
vs. $677,887. Operating expenses were $141,199 vs. $256,240. As a result, the
income from operations for the 3rd quarter 1999 was $13,989 vs. a loss in the
3rd quarter of 1998 of $49,716. The turnaround was due to better sales and
higher margins.
The net interest expense for the 3rd quarter was $6,876. The resulting net
income from continuing operations aggregated $14,715 for 3rd quarter 1999 or
$.O1 per share vs. a net loss of $43,197 for the 3rd quarter 1998 or ($.01) per
share.
Net loss from discontinued operations was $27,789 for 3rd quarter 1999 or ($.01)
per share vs. net gain of $44,026 for 3rd quarter 1998 or ($.01.) per share.
<PAGE>
The resulting net loss aggregated $13,074 for 3rd quarter 1999 or ($.O1) per
share vs. a net gain of $829 for 3rd quarter 1998 or $.0 per share.
Batter Bake-Chatterley Inc., (the BBC subsidiary) offers a line of batter and
frozen finished cakes, muffins, tart shells and other desserts. BBC's financial
records and affairs are kept separate from the parent but included in the
consolidated financial statements at Sep. 30, 1999 and 1998.
c. Plan of Operation:
Exit from Retail Operations:
After analyzing the Company's retail operations, management concluded that the
unprofitable retail division was diverting it's attention away from pursuing
profitable opportunities in the Company's other division.
Therefore, by December 31, 1997, the company closed down four of its six stores.
A fifth store, in Macy's cellar was taken over by Ferrara Bakery from April 1,
1998, The commissary was closed down on June 30, 1998 and the last remaining
store on Madison Avenue was sold in November 1998.
The Company retains a 50% stake in the Wholesale and Mail Order business, which
it will develop jointly with the new owners.
Under the licensing agreement, a second Greenberg retail store was opened in
August 1999. The company will earn royalties on sales exceeding $400,000 in any
new store.
The company has also signed a licensing agreement with Stone American Marketing
and meetings were held to explore licensing the William Greenberg name with a
major department store chain. This arrangement allows us to increase revenue and
profits without incurring the expenses normally associated with opening and
operating stores.
In connection with the restructuring plan, management has written down property
& equipment as of Sep. 30, 1999 to approximately $35,000. The Company had
charged 1996 with a $450,000 provision for actions aimed at restructuring the
Company, of which $369,459 was actually incurred as of Sep. 30, 1999. This
charge mainly comprises write down of leasehold improvements on stores that have
been closed down, provisions for lease obligations on certain retail stores, and
charges for consultants involved in the restructuring. By taking the above
actions, future periods will not be burdened with the amortization, depreciation
or expense of these costs.
<PAGE>
Wholesale Operations:
The next phase in the company's plan of action is to build up the wholesale end
of its business with fewer, newer and more profitable products. This process
includes the following:
Calling on supermarket headquarters and chain restaurant accounts. Brokers have
been appointed and sales calls and visits are being made.
Continue to expand the fat free and sugar free product line targeting existing
as well as new customers; and
Enter into co-packing arrangements whereby the company would introduce private
label products of other bakery operations.
Liquidity and Capital Resources:
Since its inception the Company's only source of working capital has been the
$8,642,500 received from the issuance of its securities.
In June 1995, The Company issued 180,000 shares of common stock to unrelated
parties for $600,000 and its August 1995, the Company issued 60,000 shares of
its common stock to unrelated parties for $200,000. In connection with the
acquisition of Greenberg's-L.P., the Company received $2,000,000 from the sale
of two notes to InterEquity Capital Partners, L.P. ("InterEquity"). During
October 1995, the Company received net proceeds of $4,900,000 from the sale of
1,150,000 shares of its common stock in an initial public offering. During
January 1997 the Company received net proceeds of $1,747,500 from the private
placement of 1,875,500 common stock purchase warrants at $1.10 per warrant.
During October 1997 the Company received net proceeds of $883,000 from the
exercise of a portion of these common stock warrants. During January 1999, the
Company received a further $187,500 from the exercise of another 150,000 of
these warrants. Of the $5,700,000 proceeds from the aforementioned stock sales:
(i) $2,125,000 was issued to repay the InterEquity debt including interest; (ii)
$2,615,000 was used in operations; (iii) $765,000 was used to purchase property,
equipment and leaseholds; and (iv) $195,000 was used for general corporate
purposes. The $1,650,000 proceeds from the private placement warrants was used
to acquire JMS. Of the $1,071,000 proceeds from the exercise of warrants
$325,000 was used for consolidation and merger of JMS and Chatterley and the
balance is being used for corporate purposes and to fund new business.
As of Sep. 30, 1999, the Company (continuing operations) has a negative working
capital of approximately $200,939 as compared to a negative working capital of
$292,704 at Sep. 30, 1998.
<PAGE>
During 1997 and 1998 Management took actions aimed at restructuring the Company
in order to reduce operating costs and enhance the Company's focus and
efficiency. Pursuant to the restructuring, a new management team was put into
place, executive contracts and leases were renegotiated and certain positions
were eliminated and an exit strategy out of retailing was completed.
The Company is continuing to seek new and profitable avenues of growth during
1999. As a result of the new strategy and concentration on growing Batter
Bake-Chatterley, there has been an increase in new business. The Company has
secured approximately $1,000,000 in new annualized business from a national
supermarket chain for which it started producing in June 1999. Another $800,000
in annualized business began for a fund raising company in September 1999. This
is a seasonal business to be delivered between September and December.
Reception to our new mini cakes has been overwhelming. Future plans call for
producing these products sugar free for people on special diets.
The Company is still on a stock repurchase program. It will continue
repurchasing stock at opportune moments. This stock will be used to cover
options/acquisitions. The Company will continue to seek out potential candidates
for merger or acquisition that meet its specific needs.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on November 19, 1999.
CREATIVE BAKERIES, INC.
By: /s/ Philip Grabow
--------------------------
Philip Grabow
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on November 19, 1999.
</TABLE>
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
President, Chief Executive
/s/ Philip Grabow Officer/Director
- ----------------------
Philip Grabow
Chief Financial Officer
/s/ Ashwin R. Shah (Principal Accounting Officer)
- ----------------------
Ashwin R. Shah
Director
- ----------------------
Richard Fector
/s/ Raymond J. McKinstry Director
- ----------------------
Raymond J. McKinstry
/s/ Kenneth Sitomer Director
- ----------------------
Kenneth Sitomer
/s/ Karen Brenner Director
- ----------------------
Karen Brenner
/s/ Yona Abrahami Director
- ----------------------
Yona Abrahami
</TABLE>
27
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<INVENTORY> 254,907
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0
0
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